"It's a rare person who wants to hear what he doesn't want to hear." ~ Dick Cavett
Timing Is Everything
Exclusive to STR
Time preference is an economic concept that compares time in relation to an individual’s need for material gratification. Time preference is a comparison, not a measurement. Time preference is immeasurable because it is, by definition, subjective. That is, each individual has a different time preference and each individual’s time preference can change over time. Individuals with a “high time preference,” e.g. newborns, prefer immediate material gratification to time. If these individuals have a need or desire, they do not like to wait. Feed me now or I will cry. People with a “low time preference,” e.g. capitalist lenders, have developed the immaterial virtue of patience, and accordingly have cultivated the ability to choose “time” over material gratification. Even the most patient capitalist at one time was an impatient, bawling newborn. That is the miracle of evolution. People are capable of change.
In one respect, the interaction of people with high and low time preference drives capitalism. People with liquid capital (lenders) agree to give up the immediate gratification that comes from enjoying that capital (spending it on cool stuff) to individuals who need it (cash-poor entrepreneurs and businesses) in exchange for either: (a) a piece of the business (equity) or (b) a loan, which really is a money-lease agreement where the high-time preference individual gets liquid capital (money) now and agrees to pay the low-time preference individual both the amount borrowed (principal) and rent on the borrowed money (interest) over a period of “time.” The borrower chooses money, the investor or lender chooses time (and interest).
It is no surprise that our current system was the spawn of a John Maynard Keynes, the born-on-third-base-and-acts-like-he-just-hit-a-triple English mathematician and lavender secret society aristocrat whose most famous quote, made in response to criticism of prudent, patient low-time preference economists who pointed to “long run” bankruptcy of his economic system, was:
“In the long run, we’re all dead.”
It is now the long run and we are not all dead. Although his followers are moribund, only Keynes is dead. The rest of the West is, as Keynes’ low-time preference critics predicted, bankrupt, a direct consequence of following Keynes’ bankrupt ideology for nearly 70 years.
It is also no surprise that the “winners” in Keynes’ system are not the prudent capitalists who cultivate patience and carefully and dispassionately analyze investment opportunities and credit risks. The “winners” in Keynes’ system are the impatient, high-time preference newborn whiners who latch onto the government teat like baby swine and bleat for protection in the form of newly-printed fiat dollars the minute they stand to lose on their bets. These politically connected insiders--Goldman Sachs, JP Morgan, Citibank, Deutschbank and their executives--have protected themselves from the “systemic risk” inherent in Keynes’ central bank cartel, fiat-money system by doing the only thing that really matters: putting themselves firmly in the pocket of the central bank and kissing the rear ends of the politicians who bend the knee to the central bank.
While the patient and prudent are now scrambling to pay their bills and perhaps even defaulting on their mortgages, the central bank abettors and sycophants are awash in newly printed dollars. These dollars, held in just a few select hands, still enjoy high purchasing power in the marketplace as the little guy gets squeezed. This is because very few (perhaps even some of the insiders) know that the central planners have increased the real money supply by at least 20 percent in just one year. While “Austrian” economics has a heady, highbrow ring to it, a big part of it is the very simple recognition that increasing the money supply in a purely fiat-money system will inevitably cause prices to increase in relation to the fiat currency. Although central bankers can temporarily squeeze additional value out of their notes by causing interest rates to rise and by raising bank reserve ratios, only Austrians are smart enough to recognize the nearly self-evident proposition that twice as much paper money chasing the same amount of goods means that paper prices of those goods will double. The planners can of course manipulate some asset classes with the carrot of subsidy and stick of tax, but only the Austrians appear to understand this fundamental economic concept: increased money supply = increased prices.
So what is the lesson in all of this?
In our crony socialist system, the impatient, politically-connected money-grubbers win by getting their hands on the fiat money first. The real capitalists—those who refuse to play that dishonest game—lose. Timing is everything.
So what can you do about it?
Not much, but if someone from Goldman Sachs tries to buy something from you, charge him double.